Empirical Test of Hechscher-Ohlin Theory between Nigeria and USA

Abstract

This study empirically tested if Nigeria patterns of production and trade are consistent with the Heckscher-Ohlin framework. The theory predicts that countries export the products that use their abundant factors intensively. As such, Secondary sources of data were collected from Central Bank of Nigeria and United Nation Conference on Trade and Development (UNTCTAD). The data for the study were transformed into nine sectors, namely manufacturing sector, Agricultural sector, mining sector, service sector, consumption sector, trade, Electricity, export and import sectors which formed the input-output table. The study utilizes an estimation methodology used by Leontief in the construction of input-output table. The study observed that the value of capital\labour ratio imported from U.S.A to Nigeria showed a value of (2.09) which exceeds the critical value of (1) or a representation of 55.7% of Nigeria total major imports from USA. This empirical result showed that Nigeria’s pattern of production and trade are inconsistent with the prediction of Heckscher-Ohlin theory. This is because; Nigerian experience has proven Heckscher-Ohlin theory a dynamic model as against static model argued by others. This is indeed a major departure of Nigerian experience of Heckscher-Ohlin theory from others countries of the world. As such, the key policy implication from the study is that Nigeria should shift her patterns of production and trade from capital intensive oil production to labour intensive agricultural production as capital is scarce resources in Nigeria and at the same time make intensive use of her relatively abundant endowed labour resources, rich soils and favourable climatic conditions. Though, the study observed that there are some agricultural commodity and activities that Nigeria cannot do without employing labour intensive, such as groundnut, cocoa and palm products harvesting.

KEYWORDS: Heckscher-Ohlin theory, labour intensive, imports, input-output matrix & capital intensive